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A powerful partnership.

Twelve New York banks are reaching out to borrowers who never dreamed they could be homeowners, until now. Local community groups are crucial partners making the program work in the neighborhoods of New York.

In the New York metropolitan area, with its sky-high real estate prices, most people of low or moderate income can only dream of owning a home.

But during the past few years, several New York City banks have launched initiatives to help make the remote dream of homeownership a reality for more lower-income families in the city.

Skeptics might well say that the Community Reinvestment Act (CRA) deserves the credit for spurring the banks into action, and that statement is true to a point. However, on the other side of the coin is the fact that banks are a part of the community, and if the community thrives, so do the banks.

Individual affordable housing programs sponsored by New York banks have enjoyed varying degrees of success. Now, twelve banks have gone one step further and banded together to provide even greater opportunity for New Yorkers in lower-income groups to afford their own homes.

A consortium of 12 New York banks and 10 community groups dedicated to affirmative lending to low- and moderate-income homebuyers began operations last May under the name of the New York Mortgage Coalition. Coalition members are committed to providing mortgages that meet the specific needs of designated borrowers and also are seeking to expand the pool of qualified applicants through a variety of outreach and counseling programs.

Phyllis Rosenblum, community affairs officer at Republic National Bank of New York and Republic Bank for Savings, is serving as the first chairperson of the coalition. Rosenblum, along with Carol Parry, managing director for community development at Chemical Bank and vice chairperson of the coalition, were inspired to create the New York Mortgage Coalition.

"We wanted to take a positive step in response to allegations of discrimination and Fair Lending Act violations against banks that were surfacing throughout the nation," Rosenblum says.

The two were also impressed by the success of the Delaware Valley Plan in Philadelphia. The Delaware Valley Plan was founded in 1975, and since its creation, the nine member banks have made more than $200 million in mortgage loans in designated communities. Rosenblum and Parry saw from that example that banks acting together could be more effective in providing mortgages in low- and moderate-income neighborhoods than banks acting alone.

The two New York bankers recognized several important advantages in the Delaware Valley Plan approach. One of the most important benefits of the collaboration was that if one of the nine banks could not meet the needs of an applicant, the other eight banks reviewed the application. This allowed the applicant to be considered by nine financial institutions without having to go through the application process nine times and without incurring the extra costs of submitting eight more applications.

The additional review process frequently led to mortgages for applicants who had been turned down by the first bank to which they applied. Another benefit of the Delaware Valley Plan was the participation of community groups that provided counseling to prospective homebuyers. Cooperation among the banks and the community groups led to more effective outreach to the community and to the exchange of knowledge regarding better ways to meet the community's needs. That, in turn, led to more mortgages for the participating banks.

Rosenblum and Parry knew that New York's large, low-and moderate-income, minority and immigrant populations, coupled with a high-priced real estate market, created special issues for mortgage lenders. Many banks in the New York area already were addressing the problem on their own, by offering special products with lower down payments, higher debt-to-value ratios and lower fees. Most of the well-known New York banks had been working with community groups to help attract more of these borrowers and counsel the applicants through the process. None of the banks, however, believed its efforts had produced optimal results. So with the leadership of Rosenblum and Parry, a group of banks began to explore ways of creating a collective response to what they viewed as a critical social and economic issue.

Launching the coalition

The first six banks in the New York Mortgage Coalition were Chemical Bank, Citibank, The Chase Manhattan Bank, National Westminster Bank USA, Banco Popular de Puerto Rico and Republic National Bank of New York. These banks began meeting with community organizations in the spring of 1992 to explore methods of increasing lending. The six banks believed that expanding the New York Mortgage Coalition would increase their ability to meet their communities' needs. Subsequently, The Bank of New York, The Dime Savings Bank of New York, EAB, Fleet Bank, Independence Savings Bank and Peoples Westchester Savings Bank joined the coalition.

Parry says that the formation of the New York Mortgage Coalition is the first case of a major community development consortium being put together by middle management rather than by CEOs or boards of directors. She cites the Delaware Valley Plan and the Community Preservation Corporation (CPC) as initiatives begun by the CEOs of the participating institutions. In the case of the CPC, the initiative was in response to encouragement from the Federal Reserve.

"In the case of the New York Mortgage Coalition, ideas percolated up," Parry says. "Banks now have community development experts on their staffs, and they recommended the creation of the Mortgage Coalition to their executive management."

She looks forward to the coalition's providing a forum for the sharing of expertise and suggestions both within individual institutions and among the banks.

An opportune time

Numerous factors made 1992 an opportune time for the formation of the coalition. The Community Reinvestment Act of 1977 requires banks to make efforts to lend to all segments of their designated communities. A poor CRA rating from the regulators can prevent banks from completing an acquisition, opening new branches or even installing new automated teller machines.

In the early 1990s, the government mandated that CRA ratings be made public. Pressure from community groups for greater CRA activity has increased over the years, and banks have been encouraged to explore innovative ways of meeting their communities' credit needs and providing more loans to minority borrowers.

Home Mortgage Disclosure Act (HMDA) data for lending done in 1990 that was released to the public in October 1991 showed that nationwide a large disparity existed in mortgage application approval rates for whites and minorities. A 1991 study by the Federal Reserve Bank of Boston found that minority applicants were more likely than white applicants to be denied a mortgage, even after controlling for financial factors such as income and net worth.

Toward the end of the 1980s, the government began to exert pressure on financial institutions to take steps to ensure equal lending to minorities.

A Department of Justice complaint against Atlanta's Decatur Federal Savings and Loan alleged widespread violation of the Equal Credit Opportunity Act and the Fair Housing Act. In a 1992 settlement, Decatur agreed to pay $1 million to 48 black applicants and to increase significantly its efforts to provide mortgage loans to minorities.

In order to ensure that Decatur would adequately reach out to serve minority borrowers in its market, the Justice Department required Decatur to alter its practices in more than 40 specific ways. Those required changes included expanding its delineated community, opening a branch in a black neighborhood, using black models in advertisements, advertising extensively in black neighborhoods, giving additional financial incentives for account executives to find black borrowers and conducting market research to determine ways to provide more mortgages in black residential areas.

The Decatur Federal case provided political ammunition to community organizations active on CRA issues that were seeking to influence bank practices in low- and moderate-income neighborhoods. The Clinton administration recently put forward several recommendations on issues such as CRA, community development lending and greater access to credit for minority borrowers, especially in inner cities.

In addition to these political factors, a convergence of economic factors encouraged the creation of the New York Mortgage Coalition. Homeownership in the 1980s had grown increasingly unattainable for low- and moderate-income families in this country and for those in the New York region in particular.

Homeownership in New York City lagged behind the national average by more than 50 percent in the late 1980s; however, the dream of homeownership began to seem more realizable for many families when real estate prices fell in the late 1980s and mortgage interest rates followed suit in the early 1990s. Working together through the New York Mortgage Coalition, member banks stood to benefit by serving this newly expanded population of potential homebuyers.

Cooperation among competitors

Putting together a group of 12 competing banks, ranging in size from Peoples Westchester Savings to Citibank, was no easy task.

"A shared commitment to affirmative lending and a sense of common purpose eased the process of integrating the participating institutions," Rosenblum says. Also helpful was the fact that many of the participants in the various banks had worked with one another on affordable housing issues prior to the formation of the coalition.

The New York Mortgage Coalition's first-year budget is roughly $750,000 and each bank's contribution is assessed according to asset size.

Rosenblum says, "The participating bankers believe this budget is reasonable considering the number of banks involved, the size of the geographic area and population we are targeting, the number of people working for the coalition and the scale of our outreach." She adds that "millions of people" fall within the income guidelines of the targeted population the coalition hopes to help.

Despite different financial contributions, each bank has an equal vote on policy decisions. Decisions are made on the basis of majority rule by a committee composed of representatives from each bank.

Setting up the partnership

In the fall of 1992, the banks issued a request for proposals in an effort to select an organization to administer the program. The institutions selected the New York Urban Coalition from among the applicants. "We were looking for a broad-based, nonpolitical, multicultural and multiracial organization that had a proven track record," says Republic's Rosenblum. The Urban Coalition was founded in 1967, and its activities include public education, promotion of racial harmony, job training, substance abuse treatment, housing and community development and the development of public policy ideas that benefit lower-income neighborhoods and their residents.

Coalition Housing, an Urban Coalition subsidiary founded in 1979, has helped more than 180,000 New York residents improve the quality of their housing through a variety of programs.

The New York Urban Coalition then issued a request for proposals from not-for-profit community groups with homeownership counseling experience. Ten groups were selected from more than thirty respondents, and they cover the five boroughs of New York City and Westchester, Nassau and Suffolk counties. Member banks and a grant from the Fannie Mae Foundation contributed $600,000 to these community groups. Each group received an allocation of these funds on the basis of the size of the geographic area and population that the particular organization will serve.

Most of the organizations received grants of approximately $50,000. The 10 groups are ACORN (Association of Community Organizations for Reform Now), Asian Americans for Equality, Brooklyn Ecumenical Cooperatives, Central Harlem Local Development Corporation, Housing Action Council of Westchester, the Long Island Housing Partnership, Neighborhood Housing Services of New York City (which includes Neighbors Helping Neighbors and Neighborhood Housing Services of Williamsbridge, Olinville and Wakefield in the Bronx), Northeast Brooklyn Housing Development Corporation and the Southern Brooklyn Community Organization.

In order to more effectively serve their communities, the groups will offer counseling in 10 languages: English, Spanish, French, Creole, Hungarian, Hebrew, Yiddish, Cantonese, Mandarin and Korean. The community groups will educate prospective purchasers about the mortgage process, including how to choose a house, find an attorney, prepare the necessary documentation and calculate the size of the mortgage that they can afford. Applicants also will review their credit reports and receive basic credit counseling from the community groups.

Wendy Takahisa, vice president for eastern branch region CRA at Citibank, says that community organizations can help people who need more assistance than it would be economically viable for a financial institution to provide. "The community groups also will encourage more people to seek this assistance, because it's much less intimidating to walk into a community organization than it is to walk into a bank," Takahisa says.

Beryl Riley, vice president in Chase's Community Development Corporation, shares this sentiment and adds, "Because banks are big or appear big, people are intimidated by them. I also think that the paperwork involved in the mortgage process can seem overwhelming. The community groups will help address these issues."

Cultural barriers

Riley also notes that community groups have the advantage of familiarity with their clients' cultures, languages and special concerns as homebuyers. For example, in some immigrant communities, people may be creditworthy even though they do not bank in a traditional way. Some immigrants may handle their finances primarily on a cash basis and, therefore, may lack credit histories.

Chris Kui, executive director of Asian Americans for Equality, says, "Many first-time homebuyers who immigrated to this country from Asia in the last five years tend not to have credit histories. This is due partly to a traditional stigma against credit in Asian cultures, which means that someone doesn't have enough money to pay cash."

He says that part of his counseling involves encouraging mortgage borrowing and homeownership in general in his community.

"Some of these people think they don't have the down payments to buy homes, but we show them that they can buy a house with only 10 percent or even 5 percent down, under the New York Mortgage Coalition's programs," Kui says. He says that his clients are often surprised that their down payments don't need to be 50 percent.

"Sometimes they have been eligible for a mortgage for years before they apply," Kui says. He adds that he anticipates the outreach efforts facilitated by the New York Mortgage Coalition will help members of his community attain what Asians consider a major part of the American dream--owning a home. He believes that one of his main tasks in helping people realize this goal will be to teach them how to use credit and develop good credit records.

The coalition expects that some of the people brought in by the outreach effort will have extensive, but problematic, credit records. Applicants who have poor credit histories may receive credit counseling from their local community group or be referred to Budget and Credit Counseling Services (BuCCs), a state-licensed, not-for-profit credit counseling agency. BuCCS will receive an annual grant of $100,000 from the coalition to advise all applicants who are referred for credit counseling.

"A perfect fit existed between BuCCs and the coalition," Rosenblum says.

She adds, "Their view of problems and solutions to problems was very similar to our own, especially their belief that proactive steps are necessary to help people before they encounter credit difficulties or before these difficulties get out of hand. BuCCs has been extremely successful in their programs and many people have benefited tremendously from their services."

Prospective homebuyers learn how to document their assets, develop a budget that will allow them to save for a down payment and make the subsequent mortgage payments. Those with significant debt receive individually tailored debt-management counseling. BuCCs also will assist people who encounter difficulties during the term of their mortgage.

Parry says, "We will continuously monitor the loans and refer anyone who is late on their payments to counseling by BuCCs."

BuCCs is also responsible for training the homeownership counselors with the community groups to enable them to provide basic credit counseling, and BuCCs will serve as an ongoing resource for these groups. Dave Forbes, a mortgage counselor at Neighborhood Housing Services, gives an example of the kind of credit counseling he has provided with the coalition's support.

Forbes recently counseled a client who had a good-paying job as a nurse, but who recently had encountered financial difficulty, partly as a result of having to support a son in college. Forbes helped her negotiate with her creditors in order to settle her debts. He then recommended that she look at an apartment in a newly refurbished building on Central Park North in Harlem.

With her new and improved credit status, Forbes helped her apply for the mortgage.

Forbes estimates that he spent the equivalent of several days working with her, but says, "Seeing her move into her new apartment this summer was great. It's very gratifying knowing people I have helped to get a home. It makes me realize that I'm not just putting papers together."

Forbes says that he continually gets letters and phone calls of thanks, as well as invitations to visit people he has helped in their new homes. As far as the coalition is concerned, Forbes says, "The phones have been ringing off the hook with calls from people who have seen the coalition's advertisements." These calls have come from people at all different phases of the homebuying process.

Some participants responding to the New York Mortgage Coalitions community outreach are ready to apply for mortgages but have not yet found a specific property to buy. These people will be given access, through their community group, to a list of affordable houses in the metropolitan area. The Urban Coalition will assemble and periodically update this list. After the applicant selects a property, either through the Urban Coalition's clearinghouse or by other means, the community groups will direct the applicant to any of the banks in the coalition. The community groups will help the prospective homebuyer complete the mortgage application and serve as an advocate for the client throughout the process.

A new brand of mortgage broker

After a year of successfully conducting the outreach, counseling and referral of mortgage applicants to coalition banks, the community groups may then apply to be licensed as not-for-profit mortgage brokers by the New York State Banking Department. It is expected that future funding of the community groups can, in part, be generated by broker's fees rather than by grants from member banks. In this way, new counseling groups can be added to expand the services available.

An advisory committee of community leaders will give feedback to the coalition's members on the effectiveness of the program and will suggest possible improvements to the process. The Urban Coalition will oversee meetings of the community advisory committee, monitor the progress of the participating community groups, create and maintain the housing clearinghouse and publish an annual report to the public on the activities of the New York Mortgage Coalition. To support these services, the Urban Coalition will receive annual funding from the coalition of banks.

Citibank's Takahisa also sees benefits to the collective involvement of many banks in the New York Mortgage Coalition. "We hope that the whole will be greater than the sum of the parts," she says. She sees economies of scale in endeavors such as advertising and funding the start-up costs of the community groups' outreach efforts.

David Dalrymple, senior vice president of mortgage originations at Peoples Westchester Savings Bank, shares this view and states, "The start-up time, money and resources would have been much greater if we'd done this alone." He adds that the smaller banks in the coalition, in particular, benefit greatly from the pooling of financial and human resources.

Pat McEnerney, regional vice president at Bank of New York Mortgage Company, believes that cooperation in the New York Mortgage Coalition will also help member banks to jointly communicate their concerns to Fannie Mae and Freddie Mac and jointly encourage them to address New York, urban, inner-city issues. McEnerney says that communicating with a common voice could help influence underwriters and insurers to be more flexible in their criteria for accepting mortgages from low- and moderate-income borrowers.

Both Fannie Mae and Freddie Mac have themselves come under increased pressure to purchase inner-city, minority and low- and moderate-income mortgages. The "30/30" rule, enacted by Congress last year in legislation covering the government-sponsored enterprises, mandates that 30 percent of the mortgages that Fannie and Freddie buy each year be for homes for low- and moderate-income borrowers and that 30 percent be for properties in inner cities, although a single purchase can be counted toward both goals.

Just as Fannie Mae and Freddie Mac will help the New York Mortgage Coalition by buying mortgages, the coalition will help Fannie Mae and Freddie Mac comply with their 30/30 requirements by expanding the pool of mortgages that meet the 30/30 criteria.

Joe Holley, the executive director of the Northeast Brooklyn Housing Development Corporation, says that he believes there are also advantages to the cooperation between banks and community groups. "The banks have made a commitment to providing mortgages in our community, which is a real improvement over the redlining that used to go on," Holley says. "While relations had at times been confrontational in the past, the New York Mortgage Coalition is a very real partnership between community groups and the banks."

Competition for borrowers

Despite all the cooperative aspects of the coalition, the member banks will still be competing among themselves to provide financing to borrowers, because there is no formula for splitting up potential clients. This will help borrowers get competitive mortgage rates and terms and also avoids the possibility that the New York Mortgage Coalition could be perceived as a potential violator of antitrust laws. While the banks in the coalition hope to raise the absolute number of applicants, the relative distribution of mortgages among the members will not be predetermined.

One of the key features of the New York Mortgage Coalition is the mortgage review committee, which will allow all the banks to review an application if one of the banks decides it cannot grant a mortgage to the applicant. The application is then circulated among the members of the committee with the applicant's name undisclosed, in order to avoid any violations of the Fair Credit Reporting Act. As with the Delaware Valley Plan, the lending guidelines of the participating banks will vary, and one bank may decide to give a mortgage to an applicant who was turned down by another bank.

Peer pressure

Parry says, "The second review will be another check and balance of the system." She anticipates that there will be peer pressure among the banks to be flexible in their approvals of loans. Parry says that a bank that continually refers applicants to the committee that are then approved by one of the other banks "may realize that it is passing up good opportunities and reevaluate its practices."

Lori Silverstein, vice president of community affairs at Republic concurs. "The review process will encourage the first bank to make the loan," says Silverstein. She adds, "The other banks will suggest ways to structure the mortgage in order to make it feasible within the parameters of that bank's underwriting criteria"

The mortgage review committee will meet several times each month, and an applicant can expect a decision within a few weeks. The community organizations will continue to counsel or will refer applicants to BuCCs for help with serious credit problems and will encourage them to reapply when they are financially ready.

The banks in the coalition anticipate that these efforts will help increase the access of minority groups to mortgages and boost their rate of acceptance. In addition to its planned outreach efforts, the New York Mortgage Coalition hopes to learn new strategies for overcoming the obstacles that have hindered potential minority borrowers from getting mortgages in the past.

While the coalition will focus on minority homebuyers, any household with an annual income of less than 150 percent of the area median (roughly $65,000) is eligible to participate in the New York Mortgage Coalition's programs. Residents of inner-city areas do not have to meet these income guidelines.

One obstacle that the mortgage coalition hopes to overcome is the scarcity of information about opportunities for homeownership and financing in low- and moderate-income communities. The coalition runs its own advertisements in both English and Spanish in community newspapers to help combat the lack of awareness of these opportunities.

Another example of marketing outreach efforts is the fact that the coalition, the banks and the community groups all had booths and distributed information at the New York Homebuyer's Fair this summer. The New York Mortgage Coalition and Fannie Mae co-sponsored the June 12 event held in Madison Square Garden.

"This couldn't have been pulled off by any single bank," says Citibank's Takahisa, who adds that the ability for all of the participating organizations to have a presence at such events is one of the additional benefits of the coalition. More than 9,000 people attended this free exposition, which included seminars in Spanish and English about various aspects of the homebuying process. These seminars were filled to capacity and ran throughout the day. "The attendance at this event again demonstrated that there is a tremendous demand for the information that we are trying to supply," Rosenblum comments.

Outreach is a full-time job

In addition to one-time events like the Homebuyer's Fair, the coalition will seek to provide information through the day-to-day efforts of trained specialists like Bruce Davis, associate director of sales in the mortgage department of Republic Bank for Savings (formerly Williamsburgh Mortgage Services). Davis has been responsible for outreach to black communities since January 1991. He expects to see his business increase as a result of the New York Mortgage Coalition.

As part of Davis' outreach efforts, Republic placed new ads in newspapers with large black readerships and has purchased radio time on stations having extensive black audiences. To encourage inquiries, these ads emphasize that any prospective homebuyer can meet with Davis personally. He spends most of his time meeting with community groups, civic and religious leaders, mortgage and real estate brokers and potential homebuyers. Davis says, "We have to overcome the perception that banks don't want to lend money in these areas. The most important part of my job is to let people know that special programs are available."

Eric Liboy, also an associate director of sales in the mortgage department of Republic Bank for Savings, is responsible for outreach to Hispanic communities. He is looking forward to an increase in business from the mortgage coalition's efforts, some of which will target Latino neighborhoods. Liboy cites demographic data that indicates that the number of Hispanic homebuyers will rise as that population grows and joins the middle class.

Liboy says, "In the older generation, most people kept homes in their native country or planned to retire there, but the members of the younger generation consider themselves American, plan to live here permanently and want to own their homes. Part of my job is encouraging homeownership in general."

The New York Mortgage Coalition also hopes to encourage homeownership in Latino communities through its Spanish-language outreach efforts. Republic hopes to overcome language barriers by conducting homebuyers seminars in Spanish and including Spanish-speaking brokers, underwriters, attorneys and support staff.

Since its creation in May, the New York Mortgage Coalition has counseled more than 500 potential homebuyers. Michael Ringwood, the New York Urban Coalition's program director for the mortgage coalition, says he is pleased with the progress to date. "We are just in the start-up phase right now and we hope to double these numbers, but the dialogue between the banks and the community groups has been very productive and will help us achieve our goals in the long term," Ringwood says.

Many of the other participants agree that the New York Mortgage Coalition is a long-term endeavor. Bea Anderson, a mortgage counselor at the Housing Action Council in Westchester, says, "It's like planting crops. People who are not ready now will be ready a year from now."

The New York Mortgage Coalition may prove to be a model for lenders in other parts of the country. Citibank's Takahisa says that other divisions of Citibank already have expressed an interest in replicating the coalition in other cities. Joseph Galgano, vice president and CRA manager at Fleet Bank, says that the coalition might also serve as a precedent for other kinds of cooperation among banks. "Many of the benefits of the New York Mortgage Coalition might also be there for small business loans," he says.

All of the participants in the New York Mortgage Coalition agree that it is an innovative way for banks to collectively address a major social issue.

Citibank's Takahisa says, "We are a part of the fabric of New York and providing mortgages is one way to strengthen that fabric." She adds that homeownership gives people a stake in their community and a sense of dedication to their neighborhoods.

From a business perspective, this effort also promises to be rewarding for the lenders over the long term. Parry says, "We fully expect to see this portfolio perform as well, if not better, than the rest of our portfolio. This group of borrowers will not be casual about repaying their loans." Rosenblum adds: "The coalition is making a long-term commitment to the future of New York. It's also good business."

Benjamin Dattner is beginning his second year in Republic National Bank's corporate management training program. He was a 1992 graduate of Harvard where he was a reporter for the Crimson.
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Title Annotation:partnership of 12 New York banks
Author:Dattner, Benjamin
Publication:Mortgage Banking
Date:Oct 1, 1993
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